Paying Your Taxes In Bitcoin? Bill Would Make It Easy.

At tax time, you can generally settle your bill by cash (though not necessarily folded cash), check or credit card. A New Hampshire State Representative is hoping to add another way to pay: Bitcoin.

A bill introduced earlier this year in New Hampshire, HR552, would require the state's treasurer to "develop an implementation plan for the state to accept bitcoin as payment for taxes and fees." Under the bill, the plan would have to be in place by 2017.

Representative Eric Schleien (R) has bipartisan support for the plan, with two Democrat and five Republican cosponsors.

According to the bill's fiscal notes, the Treasury department anticipates an increase in state expenditures "because the Department has no familiarity with bitcoin cash operations and therefore cannot determine in advance how much time and effort will be required to become informed and address the areas of accounting, valuation, and management." There would be no impact on county and local expenditures. On the downside, moving to Bitcoin won't necessarily result in more folks paying their taxes, with Treasury determining that "[t]here will be no impact on state, county, and local revenue."

Bitcoin first appeared on the global currency scene in 2009. Bitcoins are digital currency which means that you don't rely on an exchange of paper for transactions and there is no centralized bank that records your transaction. Instead, Bitcoin is stored in a digital "wallet" which can be found on your computer. You spend Bitcoin just as you would a dollar bill on everything from buying cupcakes in San Francisco to shopping for patio furniture on
Overstock.com.

In 2014, Overstock became the largest major retailer to date to tout the acceptance of Bitcoin as payment. Overstock's public overture put pressure on Internal Revenue Service (IRS) to clarify how Bitcoin would be treated for federal tax purposes. A few months later, IRS finally issued guidance in the matter, making it clear that Bitcoin and similar currencies are to be treated as a capital asset for purposes of federal income tax (it's not reportable for FBAR purposes - for now).

But while Bitcoin has made strides in popularity, the government has been reticent to embrace the virtual currency. For now, IRS does not accept Bitcoin as payment for your tax obligation - although that doesn't mean that you can't pay your taxes using Bitcoin. Bitcoin-based shopping cart snapCard expanded its offerings last year with a service that allowed customers to pay the IRS. For the service, snapCard works like a payment processor - akin to a
MasterCard or
Visa - where you indicate how much you need to pay and you're invoiced directly for that amount. As with credit cards, a processing fee applies.

That processing fee is what worries some in government. Currently, IRS doesn't charge a processing fee to taxpayers to pay using a credit card. Instead, payments are processed by a payment processor who charges a processing fee to the taxpayer.

It's clear that Representative Schleien is hopeful that a similar arrangement would work in New Hampshire. He believes that payment using Bitcoin would not cost the state “one cent” in processing fees.

The idea hasn't been completely embraced by politicians in New Hampshire, as evidenced by the hearing

No state currently accepts Bitcoin directly as payment for taxes. However, it's clear that the idea is garnering some interest. In addition to New Hampshire, the state of Utah (maybe not-so-coincidentally the home of Overstock.com) is exploring the idea. This year, Utah State Representative Marc K. Roberts (R), introduced H.C.R. 6, Substitute Concurrent Resolution on Payment Options for State Services which proposes the creation of a Council on Payment Options for State Services to study whether and how the state could accept Bitcoin as a valid form of payment. Included in the list of potential services, via the Office of the State Treasurer and the State Tax Commission, would be the payment of taxes.

For now, most of these ideas are still exploratory - but not so far-fetched. In a recent poll for The Wall Street Journal’s MoneyBeat blog, a whopping 83% of respondents indicated there is a future for cryptocurrencies such as Bitcoin. Whether that future includes a payment option for your taxes remains to be seen.